Everyone should have a sound plan for achieving their retirement goals. If you dont know how much money you need for retirement, you cant possibly know how much to save or how to invest it. And, when times are tough, your plan will help you evaluate the damage to your portfolio.
Keep making regular contributions and increase them if you can.
Employer matches come in a wide variety
of options depending on the employers discretion. Some employers match contributions dollar for
dollar. Others match 25 or more cents on the dollar. That means each time you contribute, your employer
adds money, for free! Often times your employer will only match up to a certain percent of your salary. But
regardless, theyre adding to your retirement for you!
The worst time to stop contributing to your 401(k) is when the market is down. Think about it. When the price of gas falls, do you stop filling up your car? No. If anything, you fill up more often before prices go back up.
The same principle applies to your 401(k). You want to keep adding to your investments (and buy more if you can) while theyre selling at a discount. Lower prices mean you can buy more shares with the same contribution. This lowers your average cost basis and sets you up for bigger returns when the market recovers and trust me, it will recover.
Review your asset allocation.
The foundation of your retirement plan is your asset allocation strategy. This is the optimal mix of stocks, bonds, and cash for your portfolio. The right mix for you depends on your specific goals, time horizon, and tolerance for risk. Research shows more than 90% of your long-term investment returns are determined by your asset allocation.
Right now is a critical time to review your asset allocation. While your guts saying sell out of stocks entirely, your asset allocation might say to buy more. Following a sound asset allocation strategy will bring discipline to your decision-making and better long-term returns.
Diversify your investments and keep costs down.
As the old saying goes, dont put all your eggs in one basket. Spread your investments across several different mutual funds. Diversify by size of company through large-cap, mid-cap, and small-cap stock funds.
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